Former Foes Gain Share From Shuttered Circuit City

Walmart, Best Buy, Target, Regional Players Expand, Market Smartly

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*Discrepancies between share percentages and share gains are due to rounding. Source: BigResearch

NEW YORK (AdAge.com) -- Few categories have seen as much upheaval as the electronics sector in the last year. With the closure of retailers such as Circuit City, Tweeter and Sound Advice, a significant chunk of market share -- roughly 7% of the $170 billion consumer electronics market -- was suddenly there for the taking.

"It's been decades [since] the last time we had such a large player drop out," said technology analyst Rob Enderle. And the closures, representing some $12 billion in annual sales at the time of bankruptcy (more during those retailers' heyday), have spurred retailers of all stripes to swoop in and grab market share. In that quest, Best Buy, Walmart, Target and Amazon, as well as regional players such as HHGregg, CompUSA and branded operations such as Apple, have all stepped up their game with improved marketing efforts, new stores and customer-service enhancements.

"There are some clear winners in terms of sales out there," said R.J. Hottovy, an analyst with Morningstar. "Best Buy's strong holiday sales prove they are getting some market share. I'd also point to Walmart. Costco, Amazon and Apple are probably the other big winners. They've gotten really competitive when it comes to taking market share."

Best Buy said it's gained about 500 basis points, or 5% of market share, between May and October. The chain, along with Walmart, Amazon, Target, Sears and others, has gained ground in BigResearch's monthly survey of consumer shopping preferences (see chart, P.3). And the smaller regional players like HHGregg and CompUSA have grown sales. For its 2009 fiscal year, HHGregg reported an 11% increase in net sales, while Systemax, which operates CompUSA and TigerDirect.com, saw net sales for the consumer piece of its business rise 14% in the first nine months of 2009.

So, how are the winners winning?

Rebuilding traffic
Systemax took the most direct approach, buying the rights to Circuit City's customer list and domain name for $14 million. The retailer relaunched CircuitCity.com in May, and while traffic is nowhere near pre-bankruptcy levels, it's been coming back in the past few months. According to Compete, the site had 11.6 million visitors in Dec. 2008 (the month before Circuit City began liquidating), 292,000 in April 2009 and 1.7 million visitors in November.

"To the extent that we've been able to serve the former Circuit City customers over the internet, we've done a good job," said Gilbert Fiorentino, chief executive-technology products group at Systemax. Mr. Fiorentino said that the company has done digital advertising, both display and search, to support circuitcity.com, as well as used the customer list it acquired for e-mail marketing. The company handles all advertising in-house.

Electronics players have also maintained or even increased ad spending in the last year, unlike others in the retail space. Spending at Best Buy, which is handled by Crispin, Porter & Bogusky, has been flat at around $195 million for the first three quarters of both 2008 and 2009, according to TNS Media Intelligence. HHGregg's spending has also been steady at about $20 million during the same time period. Omnicom Group's Zimmerman Advertising handles media buying and creative, while 89 Degrees has interactive, e-mail and direct mail.

Promotional messaging has also been a major focus. In early December, Walmart said it would lower the prices of 25 popular video games until Christmas Eve by 15% to 20%. Also over the holidays, Target advertised $30 gift cards with every Nintendo Wii purchase, while Best Buy offered a free game, and at another point a $20 gift card with the purchase of a Wii. Flat-panel TVs and laptops have also been promoted in the last few months.

"We've seen a number of retailers cut back in advertising, but given the market share up for grabs, we did see more aggressiveness in consumer electronics," said Mr. Hottovy.

Moving in
CompUSA and others, such as HHGregg, have also moved quickly to expand, oftentimes into former Circuit City locations. CompUSA opened 12 stores in 2009, all in former Circuit City or Sound Advice locations, and it plans to open new stores "as quickly as possible" in 2010, though an exact number hasn't been announced, according to a spokeswoman.

HHGregg plans to have opened 20 to 22 new locations by March, plus another 40 to 45 locations in the year after that. "It's had a dramatic impact on our ability to expand," said Jeff Pearson, VP-marketing, of the bankruptcies in the electronics space. "Certainly we believe when we go into a market where we weren't before, where there was a Circuit City, that we have an opportunity to pick up that market share. ... There's a niche that we fill. As a regional player with a commissioned sales force, we can provide a better level of service."

And for those national retailers that already have a broad reach, the electronics departments have seen upgrades. Walmart, which works with the Martin Agency, began introducing more spacious and interactive electronics areas, as well as standalone sections for popular brands such as Apple and Nintendo, to its stores last spring. And this month, Target said it would invest $1 billion in the renovation of about 340 stores in 2010, enhancing the layout, assortment and in-store experience of areas including electronics and video games.

"This is going to play out for the next couple of years," said Mr. Hottovy. "This was the year that Walmart and Amazon were much more competitive in the entertainment software category. But it really isn't clear-cut who is going to win."

ACQUIRE: Weigh the benefits of acquiring the competition's customer lists, domain names and other trademarks.

SPEND: It's time to let consumers know that you are still in business.

PROMOTE: Offer incentives or deals to win new customers.

EXPAND: Consider snapping up vacated real estate.

UPGRADE: If opening new stores isn't an option, improve your store's experience to make sure new customers become loyal customers.

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